GETTY IMAGES—ALLEN J. SCABEN

Home prices keep going up, yet new homes keep shrinking—and architects say they’ll just keep getting smaller, according to a July report by John Burns Research & Consulting (JBREC). Last year, about a quarter of new homes were downsized to cut costs, JBREC says, yet new-construction home prices increased by 2.5% in 2023, peaking at nearly $441,000 in August, U.S. Census Bureau data shows. In turn, that’s led economists and other housing experts to warn of the death of the starter home.

“To get a lower-priced home built under $300,000, you’ll either have to build a smaller home or homes in a higher-density setting,” Ali Wolf, Zonda’s chief economist, told Fortune’s Alena Botros in an interview last year.

Now, architects and other residential designers are four times more likely to plan for even smaller homes than larger ones, according to JBREC. They’ll do this by designing homes with fewer hallways and more flex space. One common tactic among architects to cut down on construction costs is “the death of the hallway.”

“All that Tetris we played in the ‘90s has finally paid off. Instead of shrinking rooms to reduce overall home size, a common tactic among our architectural designers was to eliminate unnecessary circulation space,” JBREC wrote in its US Residential Architecture and Design Survey report. “Essentially, we’re Tetris-ing the functional rooms together, avoiding wasted square footage on non-functional areas like hallways.”

What is flex space and why do more new homes have it?

While new homes may not include that extra bedroom you’d like for your office or a guest bedroom, flex space can still serve that purpose, just on a smaller scale. While flex spaces have become increasingly popular—they were included in 53% of projects designed last year, according to JBREC—they’ve evolved.

“It is no longer limited to a generic, bedroom-sized room that can double as a dining room or home office,” according to JBREC. “Flex spaces have become hidden gems, particularly in smaller homes.”

Many homebuyers use these smaller spaces for things like a “pocket office,” or as a nursery. JBREC says to expect homes to have more usable “nooks and crannies” as architects and builders figure out new ways to optimize square footage.

“Flex spaces are something that have absolutely become more popular in smaller home construction,” Seamus Nally, CEO of property management software company TurboTenant, tells Fortune. “The prevalence of working from home is a big reason for this, as well as the decreasing demand for a guest bedroom. While I’m sure most people would love to have a guest bedroom, the truth is that many home buyers simply aren’t factoring that in as a necessity because it will make already expensive homes cost even more.”

Dave Copenhaver, a senior partner with BSB Design, told JBREC that his firm tries to include flex space in every home, regardless of size. Even in their smallest rent-to-build homes, the 5-foot-by-5-foot or 6-foot-by-6-foot rooms can be used as a work-from-home area or even a pet room, he said.

While smaller homes—or what we’d typically call a “starter home”—are popular among first-time homebuyers and current homeowners looking to downsize, don’t expect millennials and boomers to want or be able to afford identical new builds, JBREC says.

“For years, homes designed for millennials ended up attracting boomers, too,” according to the JBREC report. “Nowadays, we’re trimming down functions to keep only the bare essentials.” But essentials look different for these two generations. Millennials should expect to face tradeoffs in features and finishes, including smaller eat-in kitchens and outdoor spaces. But boomers won’t “be willing to make the same tradeoffs,” according to JBREC, and will expect extra storage space even in these smaller designs.

The tiny-home revolution

As previously mentioned, not all new-construction homes technically have lower square footage, but are designed to include more flex space to get the feel of a larger home. But tiny homes, accessory dwelling units, tree houses, and other compact houses are also becoming increasingly popular—particularly as home prices and construction costs continue to rise.

Tiny homes are defined by the International Residential Code that have a floor area of 400 square feet or fewer. By comparison, the average starter home in the U.S. is roughly 750 square feet to 1,250 square feet, according to Zillow.

“This solution is slightly cheaper and allows creativity in the design, the materials choice, and energy saving,” Lionel Scharly, an architect and strategic construction adviser with Real Estate Bees, tells Fortune. “Those small constructions are also faster to build, and sometimes don’t require permitting.”

However, smaller homes and lower prices can also affect the bottom line for builders.

“The difficult part is convincing builders to do it as it reduces their profit, and needs a good capability of sourcing materials,” Scharly says. However, architects can advocate for builders to follow through on these new builds, he adds.